Tech Industry May Gain From WTO Meeting
When the World Trade Organization holds its first full-scale ministerial meeting in Singapore beginning Monday, the big winner stands to be the $1-trillion information technology industry--especially its leading lights in the United States.
In a proposal with potentially rich benefits for such technology giants as IBM, Hewlett-Packard, Intel, Microsoft and Apple, the industry hopes to benefit from one of the most sweeping tariff cutbacks ever imposed on a single sector of business.
The proposal, called the Information Technology Agreement, calls for the elimination of tariffs on most computer, electronics and telecommunications products by 2000. The measure was endorsed last month at the Asia-Pacific Economic Cooperation forum in Manila and is expected to be ratified by the 125-nation WTO.
The elimination of tariffs would free U.S. companies of about $5 billion in costs and open dozens of markets to the most competitive players. The proposal covers $80 billion worth of U.S. high-technology exports and $500 billion worldwide.
“IBM’s savings alone would be $100 million a year,” according to Aaron Cross, public policy director of IBM’s governmental programs, an initiator of the agreement. Assuming a return of 10%, he said, “That’s $1 billion worth of revenue that IBM doesn’t have to generate.”
U.S. firms were reluctant to make specific forecasts. But for California, home to many of the technology companies that comprise one of the largest and fastest growing industries, this promises a big boost to the $59 billion of the state’s computer and telecommunications products already being sold to foreign markets.
High-technology exports already make up about 61% of the state’s total exports, according to the American Electronics Assn.
Whether an increase in information technology exports results in more domestic jobs is an open question. It is likely many U.S. firms will set up operations in countries agreeing to eliminate tariffs and hire from the local work force to assemble imported components.
The ITA has the enthusiastic support of the Clinton administration and acting U.S. Trade Representative Charlene Barshefsky. The president’s personal lobbying efforts are credited with winning stronger language in the recent APEC endorsement.
Because it sees the possibility of freer entry to some of the fastest-growing markets in the world, the normally fractious high-technology industry has united in a rare show of solidarity behind the ITA. Nearly 300 product categories are on the list for consideration of tariff eliminations.
The hard work in Singapore will be over which products to include in the agreement and which to leave out.
Several developing nations have argued for flexibility. Malaysia, fearing foreign competition would destroy fledgling domestic companies, lobbied for and won a vaguely worded APEC endorsement that called for the “substantial elimination” of tariffs by 2000.
“There’s a sentiment among some of these folks that if it’s a U.S. initiative, then it’s evil,” said a lobbyist for the American Electronics Assn. “Changing the language was a way for them to save face to go back to their countries and say: ‘We got room to maneuver. We didn’t knuckle under to the superpower pressure brought to bear by the U.S.’ ”
But even some large U.S. companies, such as General Electric and Corning, have voiced objections.
General Electric wants U.S. tariffs to remain in place on capacitors, tiny devices regulating the flow of electricity. Although the company declined to comment, those familiar with its objections say it fears an onslaught from offshore competitors.
Corning opposes the elimination of U.S. tariffs on fiber-optic cable and certain video display monitors made using its glass.
Its fight to keep fiber-optic cable off the U.S. tariff-free list is straightforward: Foreign telephone companies--even those now privately owned--have been reluctant to purchase telecommunications equipment from foreign suppliers such as Corning, so it doesn’t want foreign makers to have free access to the U.S. market.
If approved in Singapore, the technology agreement will be the first major action by the WTO since its formation two years ago as a successor to the General Agreements on Tariffs and Trade.
“I would read this as highly significant,” said economist Gary Hufbauer of the Institute for International Economics, a Washington think tank. “In many of the fastest-growing markets in the world, there are tariffs that are high. Of course, it’ll depend on the inclusions.”
Some trade experts are sympathetic to GE’s and Corning’s opposition to the measure. Chalmers Johnson, director of the Japan Policy Research Institute in San Diego, contends that tariffs have become a relatively unimportant barrier to free trade.
“It turns out the tariffs aren’t what matters,” Johnson said. “It’s nontariff barriers that are the problems--like legalized cartels in Japan. It’s ‘buy domestic’ policies, quotas on imports, and lax and unenforced antitrust laws.”
Japan has few formal trade barriers, such as tariffs on foreign goods, yet it has proven to be among the most difficult of foreign markets to penetrate. The U.S. trade deficit with Japan for the first nine months of 1996 was $34.1 billion, a reduction of $2.7 billion from the year before but still this country’s highest.
Successes like increased U.S. sales of semiconductors to Japan are credited to a decade-old trade accord that set a 20% target for foreign share of Japan’s market for computer chips, Johnson and other trade experts say.
The 1986 semiconductor agreement, renewed for the second time in August, was the result of intense U.S. pressure on Japan. “There should be less emphasis on rules like reducing tariffs and more on outcomes,” Johnson says.
Though IBM’s Cross and other technology executives conceded that tariffs are not the only obstacle to free trade, they maintain they are problematic--especially in developing countries. In Thailand, for example, tariffs on telecommunications equipment can be as high as 40%, according to the American Electronics Assn.
Even the European Union imposes 14% duties on imported semiconductors. By contrast, U.S. tariffs on high-tech products are relatively low: At the high end of the scale, imported telecommunications equipment faces tariffs of about 5%.
Apple Computer Executive Vice President George Scalise says lower tariffs mean access to a broader market and greater economies of scale that will eventually mean savings that can be passed along to consumers.
